The business world can be a complicated place, full of jargon and professional terms that people don’t understand.
The simplest type of business is a sole proprietorship. That’s when one person goes into business for themselves. Sole proprietorships have the least amount of paperwork associated with them, and often they’re run in the same name of the proprietor.
A general partnership is a bit like a sole proprietorship for two or more people. It’s a simple kind fo business where each partner has an equal say in how things are run, as well as equal rights to profits and liabilities incurred within the business. General partnerships are usually formed with a partnership agreement in place.
Limited Liability Company (LLC)
Limited liability companies are an entity formed by one or more people who file paperwork that lays out the company and how it is to be managed and run. These companies have provisions for how the profits and liabilities are to be shared within the company. Limited liability companies can engage in any sort of lawful business except for banking and insurance, and have their liabilities limited to the value of the company.
Limited Partnership (LP)
A limited partnership is made up of at least one general partner and at least one limited partner. The general partner manages the business and is responsible for all debts and liabilities, while the limited partner shares only the income and has losses that extend only to the limit of their investment in the business.
Limited Liability Partnership (LLP)
Limited liability partnerships are similar to general partnerships, except for the fact that one partner won’t be held liable for the negligence of another partner. It’s formed by two or more partners, and typically has paperwork on file that lays out the responsibilities and management of the business, as well as how profits will be shared among the partners.
Limited Liability Limited Partnership (LLLP)
This type of business is a cross between an LP and an LLP. It’s formed by two or more partners, where at least one partner acts as the general partner and at least one partner acts as a limited partner. The general partner is solely responsible for the liabilities and debt incurred, while the limited partner shares in the profits. Both partners are protected from the negligence of one another.
Corporations are formed by filing paperwork known as articles of incorporation, which lay out the business and its investors. Corporations are entitled to certain privileges under the tax code, but may also face certain liabilities. Corporations are run by the CEO and often a Board of Directors. Crporations can be formed for non-profit or for profit. Corporations are their own legal entity, and any liabilities that they incur stay within the corporation itself.
Federally Incorporated Banks and Trusts
Last but not least is a class of business known as Federally Incorporated banks and Trusts. These can be credit unions, banks, or associations which handle and invest currency. Federally incorporated banks and trusts, as the name implies, are incorporated at the Federal level, and as such have different rules and regulations for being run.